Facebook Changing Zynga Terms in Social Games Competition

Photographer: David Paul Morris/Bloomberg

Mark Pincus, chairman and chief executive officer of Zynga Inc., watches a presentation during an event at Zynga Inc. headquarters in San Francisco. Close

Mark Pincus, chairman and chief executive officer of Zynga Inc., watches a presentation... Read More

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Photographer: David Paul Morris/Bloomberg

Mark Pincus, chairman and chief executive officer of Zynga Inc., watches a presentation during an event at Zynga Inc. headquarters in San Francisco.

Facebook Inc. (FB) and Zynga Inc. (ZNGA) loosened terms of their longstanding alliance, making it easier for competing game developers to vie for users on the world’s largest social-networking service.

The new terms eased log-in, payment and advertising requirements for Zynga, which makes most of its money by selling virtual goods in games played on Facebook.

While the agreement gives Zynga greater latitude to pursue growth on other sites, including its own, it also removes the special status that the social-gaming leader has enjoyed since 2010, when Facebook Chief Executive Officer Mark Zuckerberg and his Zynga counterpart, Mark Pincus, forged the five-year pact. Now, other game developers will have equal footing as they try to lure users of the social site, said Will Harbin, chief executive officer of game maker Kixeye Inc.

Facebook is moving toward treating all developers as equal,” Harbin said. “They are doing their absolute best to be a fair and open platform. They don’t want to muddy the waters; they don’t want to play favorites.”

Zynga shares plunged 6.1 percent to $2.46 at the close in New York. Facebook shares rose 2.5 percent to $28.

Under the new contract terms, Zynga users will no longer have to use Facebook as the login for the Zynga.com gaming portal. Zynga can also elect not to use Facebook Payments as the way for users to make purchases on its site, and it can opt not to display ads served by Facebook. While the social network can now develop its own games, Facebook said that’s not planned.

Zuckerberg’s Meeting

As Facebook distances itself from Zynga, the social network has fostered closer ties with rival game makers. Zuckerberg and Sean Ryan, Facebook’s director of game partnerships, held a dinner meeting in recent weeks with executives from top makers of social games to discuss ways for them to increase usage and sales on the social network, according to people with direct knowledge of the matter. No representatives of Zynga were present, the people said.

“The relationship between Facebook and Zynga has seemingly worsened,” said Arvind Bhatia, an analyst at Sterne Agee & Leach Inc. “Whether or not they decide to be in the gaming business, they certainly have the option to do that if they so choose.”

San Francisco-based Zynga is struggling with slowing growth as users spend more time on mobile devices. Shares have declined 75 percent since its December 2011 initial public offering. More than a half-dozen senior executives have left Zynga in recent months amid growing concern among investors about the company’s ability to accelerate growth.

Zynga Flexibility

Zynga said the new deal with Facebook will create more opportunities to market its games more widely.

“Our amended agreement with Facebook continues our long and successful partnership while also allowing us the flexibility to ensure the universal availability of our products and services,” Barry Cottle, Zynga’s chief revenue officer, said in a statement.

Facebook said the revisions give other developers more scope to write applications for Facebook’s 1 billion users.

“We have streamlined our terms with Zynga so that Zynga.com’s use of Facebook Platform is governed by the same policies as the rest of the ecosystem,” Facebook said in a statement. “We will continue to work with Zynga, just as we do with developers of all sizes, to build great experiences for people playing social games through Facebook.”

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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